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Garantia Insurance Co. Ltd. Assigned 'A-' Financial Enhancement Rating ; 'A-' Ratings Affirmed; Outlook Stable

  • Garantia Insurance Co. Ltd. (Garantia) provides a financial guarantee to a €70 million multi-issuer bond we rated 'A-' in 2014.
  • We believe that Garantia has the willingness and capacity to make timely payment in respect of the guarantee.
  • We are therefore assigning an 'A-' financial enhancement rating to Garantia.
  • This corrects an error in the application of our criteria. We had previously rated the multi-issuer bond based only on Garantia's financial strength rating.
  • We are also affirming our 'A-' issuer credit and financial strength ratings on Garantia.
  • The stable outlook reflects our expectations that Garantia will continue to have a strong niche position as a provider of credit insurance in Finland and a significant surplus of capital resources above our 'AAA' capital requirement.
LONDON (S&P Global Ratings) Dec. 10, 2018--S&P Global Ratings today assigned 
its 'A-' financial enhancement rating (FER) to Finland-based Garantia 
Insurance Co. Ltd. (Garantia). At the same time, we affirmed our 'A-' issuer 
credit and financial strength ratings on Garantia. The outlook on all these 
ratings is stable. We also affirmed our 'A-' rating on the multi-issuer bond 
guaranteed by Garantia in 2014.


We have assigned an FER to Garantia in order to correct a misapplication of 
our criteria. Previously, we based our rating on a €70 million multi-issuer 
bond issued and guaranteed by Garantia in 2014 on its financial strength 
rating (FSR). While our FSR speaks to an insurer's ability to pay under its 
insurance policies and contracts, it does not address the timeliness of 
payment. Our FER is an opinion of an insurer's willingness and capacity to 
make timely payment with respect to its pledged financial commitments under 
its insurance policies, or other financial obligations that are used 
predominantly as credit enhancement and/or financial guarantees. It was 
therefore an error to have used the FSR, rather than an FER, to derive the 
'A-' rating on the bond.

In order to correct the error, we have assigned an FER to Garantia. Garantia 
has made representations to S&P Global Ratings that it understands the capital 
market expectations that timely payments are essential to protect the 
integrity of rated transactions written as financial guarantees. We therefore 
equalize the FER with our FSR and issuer credit rating on Garantia. The rating 
on the multi-issuer bond guaranteed by Garantia remains unchanged at 'A-'.

The FSR on Garantia is supported by our view of its robust underwriting 
profitability and large excess of capital at the 'AAA' level in our risk-based 
model. The rating is constrained by the company's lack of scale compared with 
peers worldwide at the same rating level. Although Garantia has diversified 
its product range, it remains largely undiversified outside Finnish credit 
risk.

The stable outlook reflects our expectations that Garantia will continue to 
have a strong niche position as a provider of credit insurance in Finland and 
a significant surplus of capital resources above our 'AAA' capital requirement 
in our risk-based model.

We could lower the ratings on Garantia over the next 12-24 months if, contrary 
to our expectations:

  • We see evidence indicating that the ties between Garantia and its financial sponsor Taaleri are strengthening, and Taaleri takes on a bigger role in Garantia's strategies beyond what we would expect of a financial sponsor. This could have a negative impact on Garantia's business or balance sheet strength.
  • Garantia does not succeed in maintaining its niche position as a provider of credit insurance in Finland, mainly because of increased competition from banks, which would lead us to reassess Garantia's competitive position.
  • Garantia's risk profile deteriorates, both in terms of product and investment risks.
  • Capital adequacy weakens below the 'AAA' level, according to our risk-based capital model.
We see limited upside potential for the ratings over the next 12-24 months.
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